CFTC issues No-Action letter to Private Fund CPO/CTAs

The Market Participants Division (“MPD” or “Division”) of the CFTC has issued a crucial no-action letter (“the letter”) to the private fund industry which serves as a follow-on to the December letter (CFTC Letter No. 25-50). This letter (CFTC Letter No. 26-06) provides relief to private funds that are registered with the CFTC as CPOs/CTAs under Regulation 4.7 and delegate to a related Designated CPO. All other components of the letter are the same as CFTC Letter No. 25-50.

The December letter essentially reinstituted the QEP Exemption for private funds so that they no longer need to register as CPOs or CTAs under Regulation 4.7. The QEP Exemption provides that as long as all fund investors meet the definition of a qualified eligible person as defined by Regulation 4.7, then no registration is required. A simple exemptive filing via email is all that is needed if all conditions are met.

In order to meet the new no-action letter requirements, the following conditions must be met to be deemed a QEP No-Action CPO:

  1. The person (CPO) is currently registered under 4.7 or relies upon an existing exemption under 4.13;
  2. The person is an SEC registered investment adviser;
  3. The interests of the pool are exempt from registration under the Securities Act and offered under Reg D, Rule 506(b) or 506(c);
  4. There is a reasonable belief that each pool participant meets the qualified eligible person (“QEP”) definition under Regulation 4.7(a)(6);
  5. Form PF is filed and received by the CFTC; and
  6. The person complies with Regulation 4.13(b) which requires filing for the exemption, however, now the filing is performed by emailing the CFTC at mpdnoaction@cftc.gov instead of via the NFA electronic portal. The email simply needs to document reliance upon the CFTC Letter 26-06 for delegating CPOs or CFTC Letter 25-50 for those that do not delegate.

There will be no CFTC enforcement action recommendation for any QEP No-Action CPO that fails to register or withdraws from registration as a CTA. In addition, a QEP No-Action CPO no longer must comply with Regulation 4.13(e)(2) which requires pool participant notification regarding the exemption.

Both of these no-action letters will only be valid until such time as the CFTC formally introduces new rules regarding the QEP Exemption. Once the rules are effective the no-action letters will become obsolete.

View “CFTC Letters”